FCS 44 FEBRUARY 1973

L1 z_;

1973 FARM COST Situation

ECONOMIC RESEARCH SERVICE • U.S. DEPARTMENT OF AGRICULTURE

FARM COST SITUATION

CONTENTS SUMMARY

Page Fann production expenses, which went up about 7 percent in 1972, are likely to rise more sharply in 1973. Summary Farm output will expand in response to unusually heavy demand at home and abroad, so farmers will Introduction use more and higher priced inputs. General considerations Leading items likely to show larger than average cost increases are purchased feed, purchased seed, Farm Production Expenses and wages of hired labor. In 1972, nearly evecy Farm Power and Machinery ...... category of expenses rose. Some of the highest Farm Buildings and Structures ...... percentage increases came in purchased livestock, Fertilizer ...... purchased seed, interest on debts, and wages of hired Farm Pesticides ...... labor. Purchased Seed ...... Purchased Feed ...... Farm Power and Machinery Purchased Livestock ...... Expenses for farm power and machinecy represent Hired Farm Labor ...... one of the largest groups of fann costs. These Taxes on Farm Property ...... expenses in 1972 rose 3 percent, advancing for all Interest Paid ...... items in the group except petroleum fuel and oil. They Farm Real Estate ...... all will rise in 1973 with the acreage expansion of several major field crops and some increase in fuel Agricultural Service Industries prices.

Farm Buildings and Structures • • • Expenses for buildings and structures (combined maintenance and depreciation) rose 4 percent in 1!172. Approved by New investments in new buildings and structures advanced 7 percent, considerably more than the 0 Outlook and Situation Board percent increase in estimated depreciation.- Further and Summary released increases are likely in 1973. ,1973 Fertilizer Principal contributor: Strong demand in 1973 will press fertilizer prices Ronald L. Mighell against the voluntacy restraints of Phase Ill. There is plenty of capacity to produce ammonia, but shortages of natural gas may restrict its production Economic Research Service in some local areas and result in shortages. More urea U.S. Department of Agriculture will be used in formula feeds for ruminant animals Washington, D.C. 20250 as a substitute for short supplies of proteins. Strong overseas demand for high analysis phosphates will keep domestic supplies tight. North Amercian • capacity to produce potash is far above consumption • • needs, but transportation problems may affect fertilizer delivecy to some areas. Fertilizer costs rose4 The Farm Cost Situation is published annually. percent last year.

FCS-44, FEBRUARY 1973 3 Farm Pesticides number of farmworkers is not expected to change much, and percentage rises in farm wage rates tend to Farm expenditures for chemical pesticides rose 9 percent in 1972 and will probably advance again in be about the same as those for industrial wages. An 1973. However, the potential for expanded use has increase in Social Security taxes paid by farmers on diminished in recent years. The outlook for indivi­ behalf of hired farmworkers became effective dual pesticides will be influenced by environmental January 1, 1973. This alone will add more than 0.5 factors, tougher regulatory policies, new pest control percent to the total farm wage bill. procedures that minimize quantities applied, and development of resistance by certain pests to specific Taxes on Farm Property pesticides. Taxes on farm property (mainly on real estate) will continue to advance in 1973, as they have in each Purchased Seed year of the last 3 decades. They rose 5 percent last year. The future trend, however; is uncertain. The Seed expenditures are likely to rise sharply in 1970, with increased acreages of grains and soybeans, and constitutionality of financing public schools from higher prices for seeds generally. Germination local property taxes is being challenged, and a Texas quality of soybean seed in some localities may have case has been appealed to the U.S. Supreme Court. If the Court upholds the lower court ruling that this been affected by the damp and delayed 19n harvest method of financing is unconstitutional, the role of period. the property tax may change. The possible use of revenue sharing and the slowing in the increase of Feed Purchased the school age population are other factors. Expenditures for feed rose 6 percent last year and will rise still more in 1973, because of effects of Interest Paid by Farmers domestic and foreign developments on prices. At Interest paid by farmers on non-real estate debt home, the high prices for livestock and livestock rose nearly 9 percent in 1972, and may repeat in 1970 products mean a strong demand for feed grains. as current high prices and expectations of high net Sharp growth of the export market since last summer farm incomes encourage the use of more credit. has added a further dimension. Protein feed prices Tightening interest rates may determine the are exceptionally high because of shortages around outcome. the world. Interest charges on farm mortgage debt will be higher in 1973 as new loans at higher rates are taken Livestock Purchased on and older loans at lower rates are paid off. Farmer expenditures for feeder and replacement livestock rose 18 percent in 1972. Despite a less Farm Real Estate Values exuberant rise expected in 1973, these expenditures Farm real estate prices are expected to continue will stay high under the pressure of consumer upward in 1973 in response to 2 years of favorable demand for finished livestock products. farm incomes and strong nonfarm demand for land. Per acre values were up a tenth last year. If the Hired Farm Labor Federal Reserve Board follows a tight money policy Total wages of hired farmworkers rose nearly 8 through the year, interest rates may rise on long-term percent in 1972, and may rise as much in 1973. The funds, slowing the rate of increase in land values.

4 FCS-44, FEBRUARY 1973 INTRODUCTION

General Considerations already tight domestic supplies will also exert some The general economy will continue moving upward upward pressure on domestic prices. in 1973. The rise in economic activity has been associated with a substantial increase in industrial Farm Production Expenses production since the end of 1971. Total employment Farm production expenses will continue upward in has risen and the unemployment rate has declined. 1973, influenced both by higher prices and by larger Price increases have been moderate, but prices of inputs of many items used to expand production. some goods and services are still going up. Expanses were about 7 percent higher in 1972 than in Farm costs in 1972 were influenced by the 1971 (table 1). The increase in 1972 was related to the provisions of the Phase II program to prevent general rise in worldwide demand for feed grains and inflation. The program placed restraints on prices of protein feeds, the higher price of feeder livestock, and inputs of nonfarm origin. Prices of inputs of farm the fact that Phase II controls did not restrain prices origin were less directly affected and rose in response offarm inputs as much as expected. These factors will to strong demand factors. Developments were partly continue to operate in 1973. The voluntary general reflected in the ratio of the index of prices received by price standards of Phase III may not provide as much farmers to the index of prices paid for all items which restraint as did the more visible controls of Phase II. rose from 95 (1967=100) in to 105 in The farm production expenses shown in table 1 . include variable operating expenses and such regular One of the notable events of 1972 was the large expenditures as taxes on farm property, interest on purchase of wheat and feed grains by the USSR. farm debt, and net rent to nonfarm landlords. All Stocks of these commodities have been reduced and these items are cash flows. Expenses also include their prices have risen sharply. depreciation and other forms of farm capital Adverse weather in the last months of 1972 consumption which are not cash flows but represent interfered with the harvest of corn, sorghum grain, approximations of current replacement costs of and soybeans. The year ended on a note of equipment and buildings. In a sense, they are like uncertainty about the final outcome of these crops, moving annual averages over a period of several especially soybeans. Prices of sQybeans and soybean years. Actual cash expenditures for machinery and meal rose to record levels as shortages of protein feeds buildings in a given year may be more or less than developed around the world. depreciation and capital consumption. For example, The influence of the USSR, , and other farmers in 1972 brought more tractors than usual countries as markets for our farm products will be felt largely because they had the money. through 1973, but the longer run effect will need to be Prices of inputs offarm origin are likely to fluctuate reappraised from time to time. The present situation more than prices of those of nonfarm origin. Because rests partly on a combination of circumstances, such of annual supply changes related to weather, as bad weather in USSR and India, that may not expenditures for feed may change abruptly. persist. However, the present situation also reflects Nevertheless, given time, the prices of some inputs of strong long-term growth in food demand here and nonfarm origin change as much as those of farm abroad and the relaxation of international tensions. origin. But there are differences. For example, prices The recent devaluation of the dollar will have some of fertilizer have changed relatively little since 1960, upward influence on the prices of several farm input while consumption of fertilizer has risen items, both imports and exports. Imports of considerably. In the same time span, prices of farm petroleum fuel will cost more; exports of feed grains machinery have doubled, while volume has gone up a and high analysis phosphate fertilizers coming out of third. (fig 1 and 2).

FCS·44, FEBRUARY 1973 5 Table 1-Farm production expenses, , 1970 and 1971, percentage change 1971 to 1972, and forecasted change 1972 to 1973

Change 1971 Forecast 1972 Item 19701 1971 1 to 19722 to 19733

Million Million Percent Direction dollars dollars Farm power and machinery

Petroleum fuel and oil ...... ••.•..•.. 1,767 1,833 -2 ++ Repairs and maintenance on motor vehicles ...... ••...... •...... • 1,695 1,762 2 + Repairs on other machinery ...... 865 894 4 + Depreciation on motor vehicles ...... 2,314 2,547 4 + Depreciation on other machinery ...... 2,453 2,644 6 +

Total ...... •...... 9,094 9,680 3 +

Farm buildings and structures

Repairs and maintenance ...... 704 747 7 + Depreciation on farm buildings ...... • 1,729 1,774 3 +

Total ...••....•...... 2,433 2,521 4 +

Fertilizer and lime .•...... •...... 2,222 2,522 4 + Farm pesticides ...... 896 959 9 + Purchased seed ...... 829 978 9 ++ Feed purchased ...... •...... 7,189 7,956 6 ++ Livestock purchased ...... 4,345 4,759 18 + Hired labor, total wages •...... 3,643 3,809 8 ++ Insurance• .•....•...... 227 215 5 ++ Taxes on farm property ...... 2,957 3,093 5 ++ Interest on non-real estate debt ...... 2,0·11 2,016 9 ++ Interest on farm mortgage debt ...... 1,717 1,849 11 ++ Net rent to nonfarm landlords ...... 1,302 1,328 13 Other expenses5 •••••••••••••••••••••••• 2,226 2,321 7 +

Total farm production expenses •...... 41,091 44,006 76 ++

1 Expense data for 1970 and 1971 from Farm Income Situation, livestock marketing charges, ginning, milk hauling, irrigation, FIS-220, , plus unpublished data for pesticides and grazing, binding materials, horse and mule expense, insurance. 2 Preliminary estimates. 3 Forecast: + = up to 5 blacksmithing and hardware, veterinary services and medicine, percent increase; ++ = more than 5 percent 4 Net costs for fire, and other services and supplies. 6 Preliminary estimate of 1972 wind, and crop insurance (premium minus indemnity payments total farm production expenses is $47,200 million. for losses). 5 Jncludes electricity and telephones (business share),

PRICES OF SELECTED FARM INPUTS QUANTITIES OF SELECTED FARM INPUTS % OF195o-,-----,----,----,-----,----,----,----, % OF 1950 I I l ,)/ 300~~~~---+--~---~--+---~l/~~ Fertilizer a_l_d lime ,...... ~--···· 300 '/-.. 250 !----~--~--~Farm wage rates 'f-::;./ 1,,.1' ,.~'1 I I~ 1_•.• / ~, 200 1----t---t--Farm real estate_ ~ /:..'"t-j"---.4----1 .... 200 Power and machinery ~~~---All others~--r- I ' I I/.. -· _L,..-· 1 -··········r:,.,. .... r I ----~-~ I ' ... !...... 150 q .... ----~---'h":Z---11~---1-----1 'I -_...... , --- I F 7_h-. ...,~.:J:-;,~;.b._...,,,::::·.:::·.:::c·.::::~.::~F:::::::~.(---·-·+·- r ~-'-----...... ;:--r arm mac lnery 100 100 ~;;.-J:.;.;:;;::::::t:."______L ____ ! ;'I ---· -----·-r-·--:-- ..::-t~~-~-e_si~t~ I I Fertili1zer • 1 Lafo: I I ·-·T-·-·r~ 5o~~~~~~~~_L~_L~~~~~~~-~ 0 1950 '53 '56 '59 '62 '65 '68 '71 '74 1950 '53 '56 '59 '62 '65 '68 '71 '74

U.S, DEPART .. EHT OF "'GRitULTUAf: U,i, O!PART.. f:HT 0' AOJIICULTUIIl H!O, filS H!l· 121•1 fCOHOIUC RUE ARCH SEIIVICl

Figure 1 Figure 2

6 FCS-44, FEBRUARY 1973 FARM PRODUCTION EXPENSES

Farm Power and Machinery cash outlays, were up about 7 percent. This reflects higher rates for labor and materials. These items will Farmers' expenditures for petroleum fuel decreased rise further in 1973. Depreciation, which reflects past about 2 percent in 1972. They are certain to rise in investment rather than current cash outlay, rose at a 1973 with increased acreages of some field crops; rate of about 3 percent. other upward trends in demand, and less stringent Farm buildings and structures include fences, restraints on fuel prices. In 1972, fuel prices were windmills, dams, ponds, terraces, drainage ditches, slightly lower, and somewhat less fuel was used and other soil conservation facilities, as well as farm because acreages of several major crops were down dwellings and farm service buildings. from the year before. As with farm machinery, amounts spent for The general projection of tighter fuel supplies as investments in new buildings and structures vary the Nation's expanding economy begins to press on from year to year. The depreciation item shown in limited domestic fuel resources suggests that higher table 1 representsakindofaverage. Thecashoutlays fuel prices are ahead for 1973 and later years. on new structures in 1972 increased about 7 percent Rearrangement of international trade patterns may over 1971, or considerably more than the current bring some relief. Relaxation of import restrictions depreciation shown in table 1. will also help to relieve this situation. Shifts toward diesel fuel and LP-gas may eventually help reduce cost as these fuels are less expensive than gas­ Fertilizer oline. Environmental considerations and the search for Demand for fertilizer will be strong in 1973 as alternatives to ch·emical pesticides may lead to farmers try for good yields in response to favorable changes in tillage practices that will alter fuel current prices for crops, and as more land goes into consumption rates. Increasing needs for using crop­ farm output this year in response to the reduction of drying equipment and for heating livestock shelters acreage set-asides. Prices for fertilizer will be high may add significantly to demand for heating fuels. and for a number of item.s seem likely to press on the Purchases of motor vehicles and other machinery voluntary restraints of Phase III. Specific examples by farmers in 1972 rose nearly twice as much as the are urea, concentrated superphosphate, and some of depreciation items included in table 1. This kind of the ammonium phosphates where foreign and other in vestment appears to be more closely related to farm demands are booming. The one soft spot that might incomes and availability of cash than to other develop is in the price of potash. factors. The investment credit feature of the Federal The U.S. capacity to produce ammonia, the source income tax, reinstated in 1971, also provides an of nearly all fertilizer nitrogen, will continue additional stimulus, especially in years of high considerably above consumption in 1973, but the gap income. will narrow. If U.S. ammonia producers were to Sales of farm tractors in 1972 were up about 22 operate their plants at designed capacity, they would percent, according to the Farm and Industrial tum out 15 to 20 percent more than current output. Equipment Institute. Sales in the 100 horsepower and However, the critical shortages of natural gas that above sizes increased about 40 percent and exceeded have developed this winter will restrict ammonia increases in the smaller sizes. production in some plants or local areas. Natural gas Safety and antipollution regulations may add is the principal source of the hydrogen used in something to farm machinery prices as they come producing ammonia. Its use for domestic heating and increasingly into the picture in the next few years. A even for drying 1972 com and soybeans may be given complete safety tractor cab, for example, will add preference over ammonia when circumstances force about $1,200 to the cost of a tractor; a roll bar,$400. It such choices. Ammonia producers have stockpiled should be recognized that a cab offers some real nitrogen fertilizer materials, where feasible, against advantages, not only in terms of greater personal this contingency, but some localities may have comfort and safety for the operator but also in strict shortages because needed fertilizers could not be economic terms, by providing protection from shipped to points of use in time for application. accidents, weather, noise, and poisonous sprays and The supply of high-analysis phosphate fertilizers dusts. will continue tight through 1973. Strong overseas demand has pushed world prices for these materials Farm Buildings and Structures well above domestic levels and domestic prices are Total expenses for farm buildings and structures mainly at their ceilings. World markets will tend to (repairs, maintenance, and depreciation) rose about 4 siphon off any additional supplies that become percent in 1972. Repairs and maintenance, which are available. New plants to produce phosphoric acid are

FCS-44, FEBRUARY 1973 7 under construction and more are planned for An increase in soybeans and feed grains and a completion in 1974. If all new plants come into decrease in cotton will be the dominant acreage production as planned, added capacity by late 1974 factors. Wheat acreage will also increase, but this will be equal to about 1.9 million tons of P2 0 5 , or 40 crop customarily receives little pesticide treatment. percent of the domestic use in fertilizer in fiscal1972. The expected increases in acreages of soybeans and Combined Canadian and U.S. potash capacity feed grains will add to herbicide purchases. The remains far above market demand. The prorationing expected decrease in cotton acres will contribute to a scheme of the Saskatchewan government sets leveling off in insecticide use. Dollar purchases of allowable production at a little above 50 percent of herbicides will increase over those in 1972, while capacity for the 12 months ending June 30,1973, but purchases of insecticides and fungicides should be this can be revised if market conditions warrant. near 1972levels. Farmers in the 12 North Central Statesseemlikelyto Prices of most pesticides are expected to remain use more potash in 1973 in an effort to boost grain and close to 1972 prices. However, the price of methyl soybean yields on the increased acreage. T.he parathion may be an exception. transportation problem, growing mainly out of the Both the development of resistance to unusual movement of grains for exports, is affecting organochlorine insecticides by cotton insects and the shipments of both U.S. and Canadian potash restriction on DDT (a leading organochlorine), supplies to points of use, and could cause some local effective December 31, 1972, have caused cotton shortage. growers to substitute methyl parathion (an Prices for fertilizers in recent years have risen less organophosphate) for organochlorine insecticides. than those of most other farm inputs. Price changes The increased demand has put some upward pressure in 1972 were slight as competitive forces and price on methyl parathion prices. controls limited upward movements. The total farm bill for fertilizers in 1972 was about 4 percent above Purchased Seed 1971's $2.5 billion. Seed expenditures are likely to rise sharply in 1973. Use of fertilizer last fiscal year totaled a record 41.3 Expansion in acreage of grains and soybeans will million tons but this was only slightly above that for have an important influence. Prices of seed will also fiscal 1971. On a plant nutrient basis, only K20 equivalent showed an increase. Nitrogen and be much higher. Some questions are being raised about germination of soybean seed. In some areas P2 0 5 dipped slightly. Nevertheless, per acre use of the particularly affected by rainy weather and late three main plant nutrients roseabout4 percent as the harvest of the 1972 crops, germination has been area in harvested crops dropped about 10.5 million reported to be lower than normal. Molds and virus acres in 1972. diseases apparently spread more widely when the Fertilizer exports rose 17 percent in dollar value in harvest period is damp. the year ending June 30, 1972. The United States was a net exporter of both nitrogen and phosphates. Most of the increase was for large quantities of Purchased Feed concentrated superphosphate and ammonium Farmers will spend considerably more for feed in phosphate. 1973. Demand continues strong in response to the Farm Pesticides current heavy export demand and high prices for livestock and livestock products. Although feed grain Farm expenditures for ..chemical pesticides will supplies are at a high leve~, adverse weatherin recent continue to rise in 1973, but the potential for further months delayed harvests of com, sorghum grain, and use has diminished considerably in recent years. The soybeans and resulted in some losses. Protein feed market penetration of pesticides used in the prices will continue high because of tight supplies production of com and cotton is almost complete and and strong demand around the world. Tight supplies that of pesticides used in soybean production is of hay in most areas, coupled with strong demand, showing signs of reaching an end. will keep prices up until the new crop becomes Other factors have also contributed to a mixed available. TheN ortheast is experiencing short forage growth picture in the pesticide industry. Opposition supplies because of both lower yield and poor quality. to pesticide use 'by environmentalists, tougher Of course, government program changes that allow regulations by Federai and State governments, new grazing and haying of diverted acreages will help pest control procedures that use smaller amounts of farmers meet feed needs. pesticides, and the development of resistance by Supplies of the four feed grains total 246 million certain insect pests to specific pesticides have added tons or 5 million more than last year's record volume. to the difficulty of predicting pesticide purchases. A larger carryover more than offset the 10-million·ton The 1973 outlook for both herbicide and insecticide smaller 1972 production. purchases will be influenced by acres of crop planted. Com supplies are 5 percent larger, but increased

8 FCS·44, FEBRUARY 1973 total use will lower carryover next October 1. Gom animals, and other adjustments will be tried in the prices are running well above a year ago, primarily face of this unusual situation. because of the prolonged wet weather and delayed harvesting in the Com Belt and growing domestic Purchased Livestock and export demand for feed. Prices this spring will Expenditures for purchased livestock rose reflect the final outcome of the 1972 crop, export markedly in 1972. Annual average prices paid by developments, and 1973 planting prospects. farmers for feeder cattle and calves were about a fifth Sorghum grain supplies are near those of recent above 1971 levels. Prices paid for feeder lambs rose years, but prices will be well above last year's level. even more, and feeder pigs went up from $29.60 per Although supplies of oats and barley are slightly 100 pounds in 1971 to $50.80 in 1972. Average prices lower, domestic use probably will increase as more for baby chicks and poults changed little. feeds come to market, since government loans to Prices paid for all livestock items are expected to farmers on crops will not be extended beyond current remain high in 1973. Prices for feeder cattle and herd maturity dates. Prices for these grains also are replacements, especially, will be held up by the running higher than for many years. continued pressure of high consumer demand for Protein feed supplies are up only moderately from finished beef, which will further encourage feeding last year's 20 million tons. A sizable gain in operations. cottonseed meal will offset some of the reductions in A comprehensive study of cattle raising, completed fish meal. But the tightness of protein feed supplies is early last year and published recently, appraised the most evident in distribution. Ordinarily cottonseed future potential of domestic beef production and meal goes primarily into cattle rations. Fish meal, indicated trends in beef cow numbers in the 1970's used mainly in poultry rations, is in very scant supply similar to those in the late 1960's. 1 More recent because of the short Peruvian fish meal situation. analysis suggests that the upward trend may be Soybean meal, the major source of protein and somewhat greater under the stimulus of prices higher acceptable in all animal rations, will probably show than those assumed earlier. Such an expansion little increase. Other by-product sources are small. would apparently keep pace with expected trends in Prices for protein feeds have risen to exceptionally beef consumption. high levels. 'Roy N. VanArsdall and Melvin D. Skold, "Cattle Raising Undoubtedly more urea will be substituted for in the United States", U.S. Dept. Agr., Agr., Agr. Econ. Rpt. protein in formula feeds intended for ruminant No. 235, Jan. 1973.

Table 2.-Livestock: Annual average prices paid by farmers, United States, 1967-72 Commodity and unit 1967 I 1968 I 1969 I 1970 I 1971 I 1972 Feeders and stockers: Cattle and calves, 100 lb. Dol. 24.6 25.8 29.4 30.5 32.0 38.2 Lambs, per 100 lb. 21.3 24.2 26.9 26.3 24.3 29.5 Pigs, per 100 lb. 1 33.5 33.0 39.2 42.9 29.6 50.8 Baby chicks, per 100 11.4 11.7 11.8 11.7 11.4 11.3 Turkey poults, each Ct. 55.7 54.5 54.7 55.2 56.4 56.7

INDEX NUMBERS (1967 = 100)

All livestock 100 104 117 121 125 147

1 Based on data derived from reports from farmers in 27 States on prices paid for feeder pigs weighing 40-60 lbs.

Source: Crop Reporting Board, SRS, USDA.

Hired Farm Labor compete with nonfarm businesses for the skilled workers they need to operate complicated modern In the last few·years, farmers' total expenditures farming equipment. for hired labor have risen primarily in response to Average hourly wage rates without board or room higher wage rates, because the number of hired for farmworkers as reported by the Statistical farmworkers has tended to stabilize. Percentage Reporting Service were $1.64 in 1970, $1.73 in 1971, increases in farm wage rates have been about the and $1.84 in 1972. A similar rise can be expected in same as those in industry because farmers must 1973. Even tokeeptheirpresentrelativeposition with

FCS-44, FEBRUARY 1973 9 nonfarm wage earners, hourly wages of farmworkers reduction in numbers. But since 1969, family workers would probably increase 6 percent during 1973. The have made up most of those leaving farm magnitude of wage rate increases and the total employment. increases in the farm wage bill will depend on Until major shifts to mechanical harvesting of employment opportunities, the size of any Federal tobacco or fruits and vegetables occur, the number of minimum wage increase, the volume of farm hired farmworkers may show little further change. production, social security taxes, and rising costs of Nationally, numbers of hired farmworkers have fringe benefits. declined less than 2 percent in the last 4 years (1969- As a result of new amendments to the social 72). With a national unemployment rate above 5 security law, social security taxes paid by farm percent, the farm labor supply has been relatively operators on wages of their hired workers will rise adequate. Even so, farmers in some areas have had significantly in 1973. The tax rate increased from 5.2 difficulty in finding competent help locally. Thus, percent to 5.85 percent of wages on January 1. The during 1972, the U.S. Department of Labor certified maximum amount of wages on which taxes are paid the need for 14,500 aliens to work on farms in 10 was lifted from $9,000 to $10,800, but this part will not Atlantic Seaboard States, and about 13,500 British affect many farmers. West Indians and Canadians were actually hired to Activity in unionization of farm workers continued work, mainly in harvesting sugarcane, apples, and in 1972 but at a slower pace. In some areas of potatoes. In recent years, no foreign workers were California, problems have risen in connection with legally brought in to work on farms in the Western renegotiation of expired contracts. States. Some added expenses, especially for large farms Insurance hiring labor, will occur as national safety standards are set for handling toxic materials and potentially The insurance expenses shown in table 1 include dangerous farm implements and equipment. These only fire, wind, and crop insurance. The discussion costs may be assigned to physical inputs, but they are that follows is broader in scope and comments on closely related to labor inputs. property and liability insurance costs that are The total farm wage bill nationally will also be covered under other items in table 1. For example, affected by production changes flowing from the auto and truck insurance is included in repairs and increase in volume of international trade stimulated maintenance of motor vehicles. in 1972 and continuing at least through 1973. Since Farmers' expenditures for insurance premiums much of the trade is in grains, which use relatively which are related to farm production, or to farm little labor, the effect on labor costs will be less than property used in production, were above 1971. The net the volume might suggest. cost was substantially less because of insurance Although there was no change in the minimum indemnities but was still up about 5 percent. wage law during 1972, both Houses of Congress Premium payments for property and liability passed bills to raise minimum wage for most workers, insurance continue to rise and are mainly determined including farmworkers. Similar bills will be by property values, property replacement costs, and considered in the new Congress. If a law is enacted incomes. Higher operating cost of insurance that is like the Senate bill passed last year, the companies may also be a factor, but loss rates are number of farms and farmworkers covered would be believed to be relatively stable. In 1972, premiums greatly expanded. Over a 3-year period, minimum rose 8 percent to $636 million and are forecast to hourly rates for farmworkers would be increased increase 7 percent further in 1973. from $1.30 to $2.20 per hour. The House-passed Automobile and truck insurance premiums in 1973 version would increase the minimum for are expected to rise at a slightly lower rate than in farmworkers to $1.70 with no additional coverage of recent years because State regulatory agencies are farms or workers. tightening up on requests for premium increases. -Since 1960, hourly wages of farmworkers have Automobile insurance costs remain large, increased about 90 percent. This has improved their nevertheless, and legislative proposals for "no-fault" position in relationship to the hourly wages of insurance stay alive in the Congress and many State production workers in manufacturing. In 1960, the legislatures. No-fault insurance is expected to farmworker's hourly wage was about 43 percent of reduce costs by curtailing the need for lengthy and that paid production workers in manufacturing, and expensive litigation. Although the proposals are by July 1972 it had risen to 48 percent. controversial, a few States, in addition to the two that From 1960 to 1972, the total n urn her of farmworkers now have such programs, may adopt some form of in the United States declined about 2. 7 million, or "no-fault" insurance in 1973. nearly 40 percent. During most of this period, family Payments of insurance premi urns on growing crops labor comprised about three-fourths of the in 1973 are likely to be somewhat higher than in 1972. farmworkers and the same proportion of their The acreages planted to wheat, corn, soybeans,

10 FCS·44, FEBRUARY 1973 cotton, and tobacco will mainly determine how much of the property tax in financing public schools may be crop insurance farmers will buy. greatly altered. Another unsettling factor right now The cost of workmen's compensation is estimated is the newly initiated Federal revenue sharing at $75 million for 1973, up from $70 million in 19n. program. Its impact upon local property tax depends Large farm payrolls and some increase in benefits in on the degree to which these funds are used for a few States will account for this expected rise. Only property tax relief. Considerable variation among about a third of the States have workmen's States is expected. However, the funds presently compensation benefits for farm labor similar to those available do not seem enough to afford much for other types of labor. A study, reported in 1972 by immediate relief for property taxes. the National Commission on State Workmen's Revenue needs of State and local governments Compensation Laws, recommended that comparable have been growing steadily in recent years because of coverage be required by for hired workers greater demand for local services and rising costs of on farms with an annual payroll of $1,000 or more salaries and materials. However, one of the largest and by for all farmworkers. Early elements in local government costs, that of education, enactment of such legislation by all States is unlikely shows signs ofleveling off as school age population is but liberalization of benefits for farmworkers will slowing in growth and in some instances is declining. probably continue with gradually increasing costs to farm employers. Interest Paid on Non-Real Estate Debt Interest paid on non-real estate farm loans in 1972 Taxes on Farm Property totaled 9 percent more than in 1971. Another rise is Taxes on farm property consist mainly of taxes on likely in 1973 as continuation of good farm incomes farm real estate (more than four-fifths of the total in encourages use of more credit. 1972). The remainder is made up almost entirely of Interest rates charged on short- and intermediate­ personal property taxes on machinery and term farm loans in 1971 and 1972 were 1 to 2 equipment and livestock. The personal property tax percentage points below rates in the 1969 tight­ is one tax that has been declining in importance; money period. some States have dropped it entirely because of The increase in interest costs in 1972 resulted inequities, difficulties in making assessments and mainly from the greater use of credit by farmers since collections, and other problems. interest rates were about the same as those in 1971. For many years, we have seen a steady increase in Several respondents in an ERS survey, made late in taxes levied on farm real estate (land and buildings). 1972, commented that many farmers used some of the In 1971, the latest year for which complete data are higher farm net income in 1972 to prepay outstanding available, taxes levied on farm real estate rose to debts, thereby cutting down slightly on interest $2.66 billion, 6.4 percent above the amount levied in charges. 1970. This was the 29th consecutive annual increase, although the lowest percentage increase since 1964. The 1971 rate of increase, however, outpaced the rise Interest Paid on Farm Mortgage Debt in market value of farm real estate, increasing the Interest charges on farm mortgage debt in 1972 effective rate of tax per $100 of value from $1.18 to were substantially more than the year before. The $1.21 in 1971. Taxesperacrein1971 werehigherin45 higher charges were due both to an increased volume States, with the greatest increases in Washington (H! of financing and to interest rates on new loans that percent) and Michigan (15 percent). Eight other were higher than the average rate on the outstanding States had increases of over 10 percent, while taxes debt. were up 5 to 10 percent in 17 States and less than 5 Since 1970, the value of farm real estate has percent in 18 States. Alaska, Iowa, Louisiana, increased 20 percent. However, the total farm real Minnesota, and West Virginia showed smaller taxes estate debt has increased slightly less rapidly than per acre in 1971, for a variety of reasons. the value of farm real estate. The total interest charge The future trend of farm real estate taxer is has risen 29 percent. Much of this large increase has somewhat uncertain at present. The last 2 years have resulted because interest rates on new loans made in seen a flurry of legal activity concerning public the later years have been higher than those on loans school financing and property taxes. A U.S. District made in the earlier years. The higher rates have Court in December 1971 ruled in the case of Rodriguez increased the average interest rate on the total debt V. San Antonio Independent School District that the by 0.5 percent. current method used in Texas of financing public Financial correspondents, asked about the 1973 elementary and secondary schools is outlook, indicated that they expected an increased unconstitutional. This case has been appealed to the demand for farm mortgage loans as compared with U.S. Supreme Court with a decision expected 1972. Interest rates on new loans will be about the sometime in 1973. If the lower court is upheld, the role same or a little higher. The total charges will be

FCS-44, FEBRUARY 1973 11 higher in 1973. An increased volume of new loans at the market, a short supply of land for sales, and an current rates, which are substantially higher than increased number of buyers. Reporters suggested rates on old outstanding loans, will further increase that the number of farm sales may have increased the average interest rate paid. slightly because of the·increased demand. Thus, the rate of transfer may have increased above previous years. Farm Real Estate Reporters indicated that credit availability was Farm real estate prices are expected to continue about the same in as in . upward in 1973 in response to 2 years of favorable However, there was clearly more credit available in income and a strong nonfarm demand for farmland. both these periods than in . In March The rate of increase hinges largely on the supply of 1972, 55 percent of the reporters indicated rates had credit available and the rate of interest on long-term remained unchanged while 38 percent said they had loans. If the Federal Reserve follows a tight money moved downward from the preceding October. About policy throughout the year, interest rates may rise on 81 percent of the reporters in October 1972 indicated long-term funds and the rate of increase in land that interest rates had remained unchanged over the values may be slowed substantially. preceding 6 months. In the year ending November 1, 1972, farm real In the October 1972 survey, each reporter was estate prices increased at an annual rate of more than asked for the first time to identify the major 10 percent for the first time since 1950. Sharpest characteristics of his market-whether it was increases in value were reported in the Appalachian primarily a farm market or a nonfarm market. and Southeast Regions, although all States except Comparison of. the responses indicates that ao Maryland, South Dakota, and California showed percent of reporters in the nonfarm market said the increases of 5 percent or more. number of farms offered for sale had increased while The reported increase in values is based on crop only 15 percent in the farm market had this opinion. reporter data supported by the opinions of realtors in In terms of inquiries for farmland, 61 percent of the ERS October Real Estate Survey. Written reporters in the nonfarm market believed that comments on the survey form attributed the sharp inquiries for farmland had increased. In the farm rise in prices to higher income, nonfarm activities in market, 54 percent held this opinion.

AGRICULTURAL SERVICE INDUSTRIES

In the past, farm expenses for service inputs may Details in the special Census study concerning not have been as fully reported as expenses for more agricultural service establishments will help in tangible inputs. Many items are small, and complete improving future estimates of service expenses by information is often difficult to obtain. Yet, the providing better base information. In total, there aggregate amounts spent by farmers for services are were 32,565 establishments in 1969 (some firms had substantial. Some services are included in the "other more than one establishment) whose main function expense" category shown in table 1, and some are was to provide agricultural services (table :J). They also covered in specific input items. For example, had a payroll of $593 million and employed 110,000 fertilizer expense includes some of the services paid workers who put in 150 days or more pi us :J1:J,OOO performed by fertilizer dealers in supplying fertilizer who put in fewer than 150 days. They alsohad:J1,000 direetly to farmers' fields. unpaid workers (owners and family members) who Some new light on the subject is shed by a recent put in 150 days or more plus 6,000 who put in fewer report of a special Census Bureau survey of days. businesses which mainly provide agricultural Most of these firms were small, and 4 in every 5 services. According to this survey, such firms sold were individually owned. Although the average grqss $2.1 billion of services in 1969, of which $1.1 billion income was $64,000, 1 in 3 earned less than $10,000. went to farmers. They furnished farmers such things Nearly half the sales were made by corporate as veterinary care for farm animals, cotton ginning, establishments. feed grinding and mixing, machine harvesting, California, Texas, and Florida, in that order, had contract labor, and spraying. The $1 billion of the largest sales of agricultural services and services provided to nonfarmers went for veterinary accounted for nearly a third of the United States care, lawn and tree care, and other similar tasks. The total. farm and nonfarm services taken together are called Leading kinds of farm services with sales of more "agricultural services." than $100 million included veterinary care, poultry

12 FCS-44, FEBRUARY 1973 Table 3.-Agricultural services: Number of establishments, number of workers, and gross receipts, by major kinds of services, 19691

Number Million Thousands Thousands dollars

Cotton ginning ...... •...... ••...•.• 980 80 c' > 22 Feed grinding and mixing ...... •... 464 25 1 1 Corn shelling, hay baling, andcomblnlng ..... 1,084 17 1 3 Contract services for fruits and vegetables' 324 146 (2) 45 Other crop services• 2,837 247 3 178 Veterinarians and animal hospitals ...•.••.. 10,098 537 13 40 Poultry hatcheries ...... •...... •.. 615 145 1 7 Feedlots and other animal services ...... •.. 2,227 351 2 18 Lawn, tree, and landscaping ...... •....•. 13,829 545 15 107 Hunting, and game propagation ...... 107 1 (2) (2)

Total agricultural services ...... •.•....• 32,565 2,094 37 423

1 Nearly half the agricultural services shown In this table were services, crop drying other than corn, citrus grove services, crop performed for nonfarmers. For example, nonfarmers received dusting and spraying, fertilizer application, and plowing and about two·thlrds of the veterinary and animal services, and seedbed preparation. almost all of the lawn, and landscaping services. 2 Fewer than 500 workers. 3 Includes sorting, grading, and packing. 4 1ncludes Source: U.S. Bureau of the Census, Census of Agriculture 1969. services furnished by farm labor contractors, farm management Vol. Ill Agricultural Services, .

hatcheries, and fruit sorting, grading, and packing. million in sales of agriculture services by Farm services with somewhat smaller sales we:re establishments classified in industries other than cotton ginning, feed grinding and mixing, and grain agricultural services. For these establishments, and hay harvesting. agricultural services accounted for only a tenth of The Census survey also included an additional $87 their total sales.

FCS·44, FEBRUARY 1973 13

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